Payment deferral

The term payment deferral basically refers to any kind of postponement of a payment - typically an invoice payment between a company and a customer, another company or a private individual. Payment deferrals can also occur in connection with debt repayments, loans or similar.

If a customer buys something on credit or where payment is not due until later, this is often referred to as a credit purchase. However, in practice it can also be considered a form of deferred payment.

However, the classic understanding of a payment deferral primarily refers to an existing payment or installment that is already due but is postponed to a later date.

Why use payment deferral?

A payment deferral can have benefits for both buyer and seller.

If a payment deferral occurs because the customer is unable to pay the full amount immediately but requests a deferral, it is often not beneficial for the seller.

When a customer requests a payment extension due to lack of funds, it means an unexpected and unwanted delay in payment for the seller - which is rarely beneficial.

However, in such cases, payment deferral may be necessary if the alternative is that the customer cannot pay at all.

However, if the payment deferral is offered as part of a loan, financing scheme, campaign or promotion, it can be beneficial for both parties. The seller can potentially increase their sales, while the buyer gets credit and greater flexibility in payment.

Payment deferral in debt collection

A payment deferral can also be a strategic tool in debt collection and thus an active part of the debt collection process.

By offering a payment deferral, the creditor can motivate the debtor to begin repaying their debt. For example, the payment deferral can be adjusted to coincide with the next payday or a time when the debtor has better liquidity to pay all or part of the debt.

Payment deferral is often used as an accommodating measure by the creditor or the creditor's debt collection company or lawyer.

How long can a payment deferral last?

There is no legislation or rules that set a specific duration for a payment deferral.

Basically, it is up to the debtor and creditor to agree on a suitable period. A payment extension can therefore vary from a few hours to several months or even years, depending on the parties involved and the financial situation.

What are the risks of offering a payment deferral?

In a payment deferral, it is undoubtedly the creditor or lender who assumes the greatest risk.

Any form of debt, credit or deferral carries a risk that the amount will not be paid - either in full or in part.

We therefore recommend that you use a credit check tool, such as our own solution Qatchrto assess whether the debtor has any financial risks you should be aware of.